The Significance of Monetary Policy Transmission Mechanism in the Sustainable Development of the SAARC Economic Community

Muhammad Zahid, Faiza Khalid, Muhammad Ramzan, Muhammad Zia Ul Haq, Wonseok Lee, Jinsoo Hwang and Jimin Shim
Additional contact information
Muhammad Zahid: Department of Agricultural Economics and Management, Zhejiang University, Hangzhou 310058, China
Faiza Khalid: Department of Business Administration, Air University Islamabad, Multan Campus, Multan 66000, Pakistan
Muhammad Ramzan: Department of Business Administration, Air University Islamabad, Multan Campus, Multan 66000, Pakistan
Muhammad Zia Ul Haq: Department of Business Administration, Air University Islamabad, Multan Campus, Multan 66000, Pakistan
Wonseok Lee: Department of Tourism and Recreation, Kyonggi University, Seoul 03753, Republic of Korea
Jinsoo Hwang: The College of Hospitality and Tourism Management, Sejong University, Seoul 143747, Republic of Korea
Jimin Shim: Department of Tourism and Recreation, Kyonggi University, Seoul 03753, Republic of Korea

Sustainability, 2021, vol. 13, issue 23, 1-19

Abstract: The purpose of this study is to examine the monetary policy transmission mechanisms in seven South Asian Association for Regional Cooperation (SAARC) countries to discover the viability of the convergence of the SAARC into a monetary and economic union based on common monetary channels. By employing optimal currency area theory, we used the restricted VAR analysis on the annual data from 1978 to 2017. We find that the money channel response provides proof for the presence of an exchange rate and credit channels. Furthermore, the real sector also responds to changes in fiscal and monetary shocks through the exchange rate and credit channels over short-run to long-run time horizons. This implies that the SAARC is a good candidate due to common exchange rate and credit channels. The function of the variance decomposition and the impulse for forming a monetary and economic union is that they share a coincidental pattern of dynamic reactions of inflation and growth to exogenous shocks. If the SAARC monetary and economic union is created, it will reap overall economic benefits inside and outside of Asia just like the European Union (EU).

Keywords: money channel; credit channel; transmission mechanism; exchange rate channel; SAARC (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/13/23/13171/pdf (application/pdf)
https://www.mdpi.com/2071-1050/13/23/13171/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:23:p:13171-:d:689967

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().